Friday, 16 December 2022

Mr. Mukesh Verma Vs. Sab Global Entertainment Media Private Limited - Once the fees has been approved it cannot be reduced without the consent of the Resolution Professional. This Bench therefore directs the CoC to make payment of full CIRP costs as agreed in the 1st and 3rd CoC meetings and orders that the reduction of the professional fees of the Resolution Professional for the lockdown period shall not be allowed.

NCLT Mumbai-1 (09.12.2022) in Mr. Mukesh Verma Vs. Sab Global Entertainment Media Private Limited  [IA 1917/2020 in CP (IB) 2731/MB/2019] held that; 

  • Since it is trite law that fixation of fee is not a business decision depending upon the commercial wisdom of the CoC. Thereby, confirming the objection of the Applicant herein, since the CoC who has once agreed to a decided and approved fee cannot go back on their words and reduce the fees of the RP.

  • Once the fees has been approved it cannot be reduced without the consent of the Resolution Professional. This Bench therefore directs the CoC to make payment of full CIRP costs as agreed in the 1st and 3rd CoC meetings and orders that the reduction of the professional fees of the Resolution Professional for the lockdown period shall not be allowed.

 

Excerpts of the order;.

# 1. The present Interlocutory Application is filed by Mr. Mukesh Verma ("the Applicant/Resolution Professional") on the orders of COC, seeking under Section 33 of the Insolvency Bankruptcy Code, 2016, the following reliefs:

  • a. That the exclusion of the lockdown as applicable to Mumbai, where the registered Office of the Corporate Debtor is located, i.e. for the period starting 25th March 2020 to 31st October 2020 be allowed, as per the orders of NCLAT vide Suo Moto Appeal;

  • b. That the Corporate Debtor be ordered and directed to be liquidated as per Section 33 (2) of the Code;

  • c. That the Committee of Creditors may be directed to pay the CIRP cost to the Resolution Professional immediately;

  • d. That the reduction of the professional fees of the Resolution Professional for the lockdown period may not be allowed and directions be given to the CoC to make payment of full fees for the lockdown period;

  • e. That the Applicant may be granted permission to file Avoidance Transactions Report once the Transaction Auditors report is received and discussed in the CoC;

  • f. For such other and further reliefs as the Tribunal may deem fit in the facts and circumstances of the present case.

 

# 2. It is the case of the Applicant that an application for initiation for Corporate Insolvency Resolution Process ("CIRP") was filed by Punjab National Bank under section 7 of the Insolvency and Bankruptcy Code, and the same was admitted by this Tribunal vide order dated 5th November 2019 passed in the above captioned Petition, wherein the Applicant was appointed as Interim Resolution Professional and was directed to take necessary steps in accordance with the relevant provisions of the Insolvency and Bankruptcy Board of India. A copy of the said order dated 5th November is annexed and marked as Exhibit - A to the Application.

 

# 3. Thereafter, in compliance with Section 13 and Section 15 read with Regulation 6 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations 2016, a public announcement was made on 13th November 2019 in Financial Express (English) and Navshakti (Marathi) to intimate the commencement of Corporate Insolvency Resolution Process against the Corporate Debtor and to call the creditors to submit the proof of the claims. A copy of the newspaper publication dated 13th November 2019 is annexed and marked as Exhibit-B to the Application.

 

# 4. Pursuant to the public announcement, the Applicant has received claims from 2 Financial Creditors: - . . . . . . 

 

# 5. The first meeting of Committee of Creditors ("CoC") was held 9th December, 2019, wherein the Interim Resolution Professional was confirmed as Resolution Professional u/s 22(2) of Code, besides ratification of the fees of and expenses incurred by the Interim Resolution Professional and the fees of Resolution Professional. The CoC also resolved to bear the insolvency resolution costs as the Corporate Debtor had negligible liquidity. Furthermore, the Applicant informed that he had received claims from the two Financial Creditors vide FORM C, the turnover in the last two years was Rs.2.55 Crore and Rs.0.5 Crore only and the program content was the only fixed and intangible assets of the company and there were no other fixed assets. However, there were receivables of Rs.84.91 Lakh and short-term loans of Rs.20.99 Lakh, recovery of which may add to liquidity. The copy of the minutes of the first CoC minutes of meeting are annexed and marked as Exhibit – C to the Application.

 

# 6. The second meeting of the CoC was held on 6th January 2020 wherein, the revised claim amount was subsequently submitted by Punjab National Bank from Rs.65,84,74,793.89/- to Rs.69,03,81,045.70/- and as a result of the same, the admitted claim provisionally stood at Rs.59,71,90,982.41/- whereas, the Union Bank of India also submitted the sanction documents for the temporary overdraft facilities and the revised admitted claim was Rs.59,71,90,982.41/-. The voting share based on the above changes resulted in making voting share of PNB to be 53.25% and for UBI voting share was 46.75%. It was noted in the meeting that the banks dues were much more than the total assets of the company and the receivable was from only one debtor, which was outstanding since 1st April 2018 and there was no exchange of communications with this debtor-company indicating any serious efforts for recovery by Corporate Debtor. The Applicant submits that Corporate did not have any employees on its rolls. The Promoter and Director has deputed a senior employee from a group company to coordinate with the Resolution Professional. The CoC resolved to approve appointment of valuers and their fees but did not approve publication of Form G & appointment of transaction auditors and the expenses involved. A copy of minutes of second CoC meeting is annexed and marked Exhibit - D to the Application.

 

# 7. The Applicant submits that the 3rd CoC was held on 3rd February 2020, the Applicant informed to CoC that the Ministry of Information and Broadcasting ("MIB") had demanded the dues for the period of April 2018 to April, 2020 vide a notice dated 03rd September 2019, which was not disclosed to the Applicant, nor a copy thereof was provided. On 30th December 2019, the Resolution Professional has sent a communication to MIB, communicating that the company was under moratorium and that the ministry should submit its claim within 90 days period for the dues that pertains to the period upto 5th November 2019 and inform the dues for the period after that. A reminder was also sent to MIB on 25th January 2020, however, there had been no response from the MIB. Besides updating the CoC on the status of valuation, Resolution Professional requested the members to make the payment of the CIRP costs. The CIRP cost incurred was ratified and transaction auditor was appointed by the CoC in the said meeting unanimously, whereas, the resolution for approval of publication of FORM G was approved with 53.25% votes in favour of and 46.75% votes against of publication of FORM G. A copy of minutes of third CoC meeting is annexed and marked as Exhibit – E to the Application.

 

# 8. The Applicant submits that the FORM G was published in two newspapers i.e., Free Press Journal in English and Navshakti in Mumbai editions of 12th February 2020. Two entities sought detailed document for expressing interest in the company but neither of these entities submitted the Expression of Interest within the stipulated timeframe. A copy of publication of FORM G dated 12th February 2020 is annexed and marked as Exhibit F to the Application.

 

# 9. The Applicant submits that the 4th CoC meeting was held on 3rd March 2020, wherein the Resolution Professional advised change in the voting share of banks to 51.08% for PNB and 48.92% for UBI, in view of the revised calculation sheet submitted by UBI in the last CoC meeting. MIB had submitted its claim of Rs.35 Lakh which was neither in prescribed format nor within 90 days of commencement of CIRP. This claim relates to uplinking and downlinking fees for two years for one channel and three years for the second channel. MIB was advised to submit the claim in the prescribed format. Updating the CoC on the financial and operational status of the Corporate Debtor, the Resolution Professional informed that there was no sales, purchases or major expenses occurred in the business of Corporate Debtor after the commencement of CIRP. The Resolution Professional reiterated his request for payment of CIRP cost. A resolution was also placed that CoC approve the second time publication of Form G since no prospective applicant came forward vide Form G publication dated 12th February 2020. The CoC resolved in favour of second time publication of Form G. A copy of minutes of 4th CoC meeting is annexed and marked as Exhibit - G to the application. 

 

# 10. Furthermore, the Applicant submits that:

a. The major asset of the company is the Program library stored on portable drives, licenses for two regional channels and receivables from Tanish Entertainment Pvt Ltd.

b. As regards to the records, the promoter director has been resistant to providing the records. The records have been provided in one lot after persistent follow up. However, some record has still been withheld by the Corporate Debtor like the statement of accounts of the promoters and related parties, information on the relationship between the buyer/seller companies or its Key Managerial Personnels and the Corporate Debtor or its promoters, record pertaining to the telecast of channels, file relating to recovery efforts from Tanish Entertainment, file relating to the work done by or efforts made for recovery from Viewers Interest Research Agency or Tandem Entertainment. The file relating to MIB licences was handed over after lot of efforts.

c. RP requested PNB to keep the hard disks containing the program library as it was currently kept in trust with the promoter but the bank informed that the safe deposit vault may not be conducive for storage of such sensitive matter.

 

# 11. The Applicant submits that the 5th CoC meeting was held on 10th August 2020 wherein, the Resolution Professional informed to the CoC regarding the outcome of the EOI published in the newspapers, taking custody of the records and assets of the company, need for appointing an advocate for various filings, status of transaction audit, valuation of assets, the revised FORM G was published on 12th March 2020 in two newspapers i.e., Free Press Journal in English Language and Navshakti in Marathi Language. The detailed invitation for EOI was obtained by two entities in the first round. However, they did not submit the EOI. Further, in the second round, an EOI was received from one entity even without obtaining the documents from the Resolution Professional. He was advised to obtain the complete EOI document and submit its interest based on the same. The entity did obtain the documents but deferred submission stating that the timelines have been extended in terms of the amendment in CIRP regulations and orders of Hon'ble NCLAT. The CIBIL website had reported two defaults of Rs.3.50 Crore and Rs.4.88 Crore against the entity. Union Bank of India stated that given the status of defaults reported against the Prospective Resolution Applicant, it was unlikely that the Prospective Resolution Applicant would be eligible for submission of Resolution Plan. Union Bank has on record suggested that since even after publishing two Form G's no entity has shown interest in the Corporate Debtor, the Corporate Debtor should go for liquidation, without further delay as extension would mean unnecessary

expenditure. A copy of the minutes of the 5th CoC meeting and newspaper publication dated 12th March 2020 is annexed and marked  as Exhibit H-Colly to the application.

 

# 12. The Applicant submits that the 180 day period of the CIRP of the Corporate Debtor should have expired on 03rd May 2020, however, considering the exclusion of the lockdown period caused due to the COVID-19 pandemic, the same is going to expire on 09th December 2020 since from 25th March 2020 to 31st October 2020, Mumbai (where the registered Office of the Corporate Debtor is situated) was in a state of lockdown.

 

# 13. The Applicant also submits that the CoC has, unanimously, in its commercial wisdom decided/voted to recommend liquidation of the Corporate Debtor to NCLT authorising the Resolution Professional to  file application before NCLT for the same, approved the estimates of liquidation costs, legal expenses for filing the application for liquidation and for filing Avoidance Transaction report for directions of NCLT. CoC has resolved that the Corporate Debtor Company should go for liquidation and the same has been approved in the 5th CoC meeting by 100% votes. The CoC has also approved payment of the professional fees of the Resolution Professional till the date of liquidation orders by NCLT and filing of application under Section 9 of IBC against the debtor, M/s Tanish Entertainment Pvt Ltd. A copy of e-voting result resolving recommendation of liquidation of the Corporate Debtor by the CoC is annexed and marked as Exhibit – 1 to the Application.

 

# 14. The Applicant also submits that the Report of the Transaction Auditors has been inordinately delayed because the Promoters of the company expressed their inability to meet and discuss the initial findings of the Transaction Auditors owing to the Covid pandemic and non-availability of his staff. Finally, it was decided to send the observations to the promoter director for his comments thereon. The comments of the promoter director have been recently received and the Transaction Auditors' Report is expected shortly. The Applicants seek leave to file the Avoidance Transactions Report before the Tribunal shortly after the same is received and discussed in the CoC meeting.

 

# 15. The Applicant therefore submits that the Corporate Debtor may be ordered and directed to be liquidated under the provisions of Section 33 (2) of the Code. The Applicant further submits that the Applicant is not ready and willing to be appointed as the liquidator to carry out the liquidation process of the Corporate Debtor in terms of the provisions of the Code. CoC has also not proposed the name of any liquidator or his professional fees.

 

# 16. It is also submitted that when an insolvency professional is engaged to perform a duty of the Resolution Professional then he is entitled to fee and accordingly the fees and expenses are to be approved by the CoC, which is what has happened in the present case. Further, reliance is to be placed on Regulation 34 of IBBI (Insolvency Resolution Process for Corporate Persons)Regulations, 2016 that the committee shall fix the expenses to be incurred on or by the resolution professional and the expenses shall constitute insolvency resolution process costs for the purpose of this regulation, "expenses" include the fee to be paid to the resolution professional, fee to be paid to insolvency professional entity, if any, and fee to be paid to professionals, if any and other expenses to be incurred by the resolution professional. Based on the above, it is clear that once the expenses of the Resolution Professional are approved by the CoC he cannot be debarred from claiming the fee solely on the ground that it was lockdown.

 

# 17. The applicant also submits that the COC in its 5th meeting held on 10th August 2020, has resolved to pay the professional fees of Resolution professional at 25% of the agreed fees of Rs.3,20,000/- per month for the lockdown period, without seeking his consent. Herein, it is important to note that the Resolution Professional has not agreed to this reduction of the fees. Additionally, keeping in mind since it is trite law that fixation of fee is not a business decision depending upon the commercial wisdom of the CoC. Thereby, confirming the objection of the Applicant herein, since the CoC who has once agreed to a decided and approved fee cannot go back on their words and reduce the fees of the RP. The agreed fees of the Resolution Professional for his services agreed in the 1st and 3rd CoC meetings was Rs.3,20,000/- as mentioned above. This reduction has been done without proper reasoning and application of mind.

 

# 18. The Applicant further submitted that the Resolution Professional has complied with the procedure laid under the Code read with Insolvency & Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (Regulations). The valuation report filed by the valuers has not been provided to CoC as no Resolution Plan was received and the Applicant submits that this case is fit to pass liquidation order under sub-section 2 of section 33 of the Code.

 

# 19. The valuation report was earlier not annexed to the Application by the Applicant. A clarification was issued for the same. In pursuance of the clarification, the Applicant has filed the valuation report of securities or financial assets through an Additional Affidavit containing the following details:

 

Sr. No.

Valuer

Report Date

Fair Value (INR)

Liquidation Value (INR)

1.

CA Jigar Shah

24.02.2020

87,20,420

63,32,146

2.

CMA Rajendra

Kumar

08.03.2020

80,76,600

64,80,500

 

# 20. Considering the above factors and reasons, we hold that exclusion of 221 days from 25th March, 2020 to 31st October, 2020 due to COVID-19 situation, is hereby granted. This is in terms of prayer which is made in clause (a) of the prayer clause by the Resolution Professional. 

 

# 21. In the 5th CoC meeting, the CoC after discussing and deliberating the affairs of the Corporate Debtor, unanimously, in its commercial wisdom decided/voted to recommend liquidation of the Corporate Debtor after considering that there were no EOIs received from any eligible Prospective Resolution Applicant. Thus, taking into consideration the provisions of Section 33 of the Code and also guided by the decision of the Hon’ble Supreme Court in the matter of Mr. K. Sasidharan Vs. Indian Overseas Bank (2019) SCC OnLine SC 257, this Tribunal orders for the liquidation of Corporate Debtor. This is in terms of prayer which is made in clause (b) of the prayer clause by the Resolution Professional.

 

# 22. The Applicant has rightly placed reliance on Regulation 34 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 and in accordance of the same the fees to be paid to the Resolution Professional was fixed by the Committee. Once the fees has been approved it cannot be reduced without the consent of the Resolution Professional. This Bench therefore directs the CoC to make payment of full CIRP costs as agreed in the 1st and 3rd CoC meetings and orders that the reduction of the professional fees of the Resolution Professional for the lockdown period shall not be allowed. This is in terms of prayer which is made in clause (c) and (d) of the prayer clause by the Resolution Professional.

 

# 23. The Applicant is hereby granted permission to file Avoidance Transactions Report once the Transaction Auditors report is received and discussed in the CoC. This is in terms of prayer which is made in clause (e) of the prayer clause by the Resolution Professional.

 

# 24. Having considered the facts stated as aforesaid and totality of the circumstances this Bench is of the view that there is no alternative but to order that the Corporate Debtor to be liquidated.

 

# 25. The Resolution Professional has given his consent to act as liquidator in Form 2, the same is on record. Therefore, we hereby appoint Mr. Mukesh Verma, having IBBI Registration No. IBBI/IPA-001/IPP01665/ 2019-2020/12522, Mob. No. 9820789105 as the Liquidator of the Corporate Debtor having E-mail ID: ip.mukeshverma@gmail.com.

 

# 26. This order for liquidation shall deemed to be a notice of discharge to the officers, employees and workmen of the corporate debtor, except when the business of the Corporate Debtor is continued during the liquidation process by the liquidator.

 

# 27. The fees payable to the Liquidator shall be in accordance with Regulation 4 of the IBBI (Liquidation Process) Regulations, 2016. The Liquidator shall submit progress reports as per Regulation 15 of the IBBI (Liquidation Process) Regulations, 2016.

 

# 28. The Liquidator is hereby authorized to represent the Corporate Debtor before the Government Authorities, if need be.

 

# 29. With the aforesaid observations Application IA No. 1917 of 2020, u/s 33 (2) stands disposed of as Allowed.

 

# 30. Order Accordingly.

 

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The sole purpose of this post is to create awareness on the "IBC - Case Law" and to provide synopsis of the concerned case law, must not be used as a guide for taking or recommending any action or decision. A reader must refer to the full citation of the order & do one's own research and seek professional advice if he intends to take any action or decision in the matters covered in this post.